Economic discussion and sustainability accounting
jesse.s...@mchsi.com
The meeting today will be difficult for me to make due to other commitments . However I have read the document and have a few comments. First I am forwarding some documents that I sent previously on May 13 regarding accounting for sustainability. Since there is no model per se for "sustainability accounting" I think we need to start by looking at what other sectors are doing - which is primarily in the area of reporting potential risks, understanding and reporting key impacts and being able to evaluate decisions with an appropriate time frame and life cycle approach. Sustainability accounting happens first by opening up a more expansive definition of progress and success, and by requiring the operator to understand their impacts in the broader context of sustainability. I would like to see our definitions address these ideas. Specifically by adding some of these ideas to Risk Management and changing Input/Outputs to Life Cycle Accounting, and incorporating some of these broader concepts including "Connected Reporting."
This is very conceptual but if we want to require ACTUAL accounting entries by the operator then I refer you to the "Kooistra method" (named for the VP of Finance at Frontier Natural Products Co-op) which is an idea that the operator would actually make a non-cash entry into the P&L (similar to entries for depreciation) which builds up a reserve account on the balance sheet to pay for future potential liabilities due to externalities. You could reduce the entry required if certain practices were followed. However, this is kind of complicated and you would have to use a gross measure of externalities based on something like the article by Tegtmeier and Duffy forwarded by Eric.
The more reasonable alternative may be to develop an expanded reporting system in which the operator needs to explain their impacts, and put in context the risks and benefits created for the larger system by their practices. Quantifying where possible. I think this expanded use of reporting and accounting is what part of what we are trying to get at with "economic sustainability" and would be a good step.
You can see from the attached that Forum for the Future is working on financial guidance and Accounting for Sustainability is too. Here are some excerpts from Accounting for Sustainability about Connected Performance Reports:
What is connected reporting?
Connected reporting aims to provide a new approach to corporate reporting and to address the growing dissatisfaction, amongst both preparers and users, with the incompleteness, length and complexity of many organizations’ Annual Report and Accounts.
A connected report should be focused on the needs of long-term investors and executive management. Reported information should identify and explain the connection between the organization’s strategic objectives, the industry, market and social context within which the business operates, the associated risks and opportunities it faces, the key resources and relationships on which it depends, and the governance, reward and remuneration structures in place. Further, it should explain the connection between delivery of the business’s strategy and its financial and non-financial performance. The result is a more concise, rounded and balanced picture of an organization’s overall performance, which reflects the organization’s strategy and the way it is managed.
Three Key Steps
1. Connecting business strategy and sustainability The identification of material sustainability issues and description of how each of these impact on the organization’s strategic objectives.
2. Key Performance Indicators (KPIs) and actions taken The evaluation of action taken to address each material sustainability issue and the identification of KPIs to measure performance.
3. The Connected Performance Report A balanced assessment of progress against agreed targets and towards intended outcomes.
Furthermore there is a lot of good guidance on the Canadian web-site linked to by the Michigan state link sent by Taylor: Agriculture in harmony with nature: Strategy for Environmentally Sustainable Agriculture and Agri-food Development. We might not be able to develop a complete system to calculate tradeoffs between profitability and sustainability impact but we can lay the ground work for becoming knowledgeable, transparent reporting, and continuous improvement.
Also please note the following six principles from Canadian web-site including the principle of Intergenerational Equity and the goal of clarifying the links between a market agricultural system and excellent environmental standards:
Agriculture and Agri-Food Canada's Environmental Commitment
Agriculture and Agri-Food Canada works with the agriculture and agri-food industries and other Canadians to conserve the resource base on which food production depends and to protect the environmental integrity of the agricultural landscape for present and future generations while maintaining the highest environmental standards in the operation of our own department.
The following six principles guided the design of Strategy for Environmentally Sustainable Agriculture and Agri-food Development in Canada.
Partnerships:
We will actively cooperate with our sectoral, government, and other partners in our work to promote sustainable agriculture and agri-food production.
Integration:
We will encourage building environmental thinking into the way decisions are made and business is conducted in Canada - on the farm, in the food processing plant or food distribution center, and in the government office.
Ecosystem approach:
We will promote an ecosystem approach to better place agriculture and agri-food activities in the context of the broader environment.
Environmental and resource stewardship:
We will promote anticipate-and prevent
rather than react-and-cure
approaches to the stewardship and protection of the resource base and
the environment.
Intergenerational equity:
We will strive for a fair distribution of the costs and benefits between generations and encourage environmentally responsible practices today to minimize the environmental liabilities our children might some day have to assume.
Competitiveness:
We will build on and support a market system that promotes the best environmental practices, clarifying the linkages between environmental sustain-ability and economic productivity and competitiveness.
I hope to get on the call - if not I hope this gives you an idea of my feedback.
Jesse
----- Forwarded Message -----
From: "jesse singerman" <jesse.s...@mchsi.com>
To: "economic subcommittee" <scs001econo...@googlegroups.com>
Sent: Thursday, May 13, 2010 5:57:00 PM GMT -06:00 US/Canada Central
Subject: Intergenerational equity
Attached are some uses of the idea of inter-generational equity as used in:
Report by the Commission on the Measurement of Economic Performance and Social Progress. 2008. ed. Professor Joseph E. Stiglitz, Chair, Columbia University, Professor Amartya Sen, Chair Adviser, Harvard University, Professor Jean-Paul Fitoussi, Coordinator of the Commission, IEP
URL in the document. I'll send it to Amanda for the library.
I've also attached a guide to Connected Reporting from The Prince's Accounting for Sustainability Project, and a document from Forum for Future about how sustainability creates business value. I'm not suggesting these are directly applicable to us, only that they represent a way of thinking and an approach we could adapt to our work.
Hope you find this useful.
Jesse